Is This A New Commodity Supercycle?

Source: JP Morgan

Personal Savings To Drive Demand

There is a lot of demand for services that couldn’t be used in the pandemic. Those include going to concerts, vacations, sporting events, and parties as well as drinking at bars and eating at restaurants. It’s human nature to want to catch up on things you missed. Plus, people want to forget 2020 because of all the stress it induced. We are hopefully a couple of months away from a significant slowing to the pandemic in America. The 7 day average of daily new cases has fallen from about 250,000 in early January to 95,000 now. At that nominal rate of decline, there won’t be any new cases in a month. It might not decline that quickly, but the trend is extremely positive.

As you can see from the chart below, consumers have the money to spend on these services.

They have been putting their money in the stock market. That will change when opportunities for traveling and dining out come back. That could catalyze the end of the speculation in meme stocks. The current $322 billion in excess savings is before the coming $1.9 trillion stimulus is passed.

Pastimes By Income

The table below shows the pastimes Americans have by income. For example, poorer people use tobacco and richer people golf. This can help you understand the coming increase in consumer spending. We think the rich will be helped by their savings and the poor will be helped by the stimulus + the return of leisure and hospitality jobs.

Source: Visual Capitalist

Conclusion

The January CPI report was weak. That’s understandable because rent inflation is very low. Shelter dominates that report. Oil still had a negative impact on CPI because of the comps. March will be much different. We might be at the start of a commodity supercycle. At the least, we should see higher prices because of the economic reopening and easy monetary policy. Consumers have $322 billion saved up and a stimulus is coming. This will create a boom for the industries that were most hurt by the pandemic.

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